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Is the State still failing to deter, prevent, investigate and prosecute fraud? A discussion on fraud and the measures taken against it

Lord Peter Goldsmith QC PC, in an interview with the Fraud Advisory Panel in 2016,[1] reflects on the 2006 Fraud Review and where we stand today on the fight against fraud and establishing an anti-fraud culture throughout society.

For Lord Goldsmith, “fraud was one gaping area where our response – from the police, investigating authorities and justice system – was inadequate”. As one senior judge told Lord Goldsmith, “if he’d wanted to be a criminal he would undoubtedly have turned to fraud”.[2]

So what made fraud such an “attractive” crime?

The 2006 Fraud Review identified key factors which reduced the likelihood of a fraudster being prosecuted or if prosecuted receiving harsh penalties:

Poor understanding of the extent of harm fraud causes to individuals, companies and society as a whole;

Lack of national policy or mechanisms for achieving coordinated action against fraud;

Limited State resources leading to the exclusion of people without means from justice and low to medium economic crimes going unpunished;

Weaknesses in prosecutorial and judicial processes; obstructing access to justice.[3]

Accordingly, the Fraud Advisory Panel in 2006 came to the conclusion that the State was failing to offer citizens a reasonable level of protection against fraud.

What was done in response?

In response to the recommendations of the 2006 Fraud Review additional funding was provided to support counter-fraud policing across the UK, Action Fraud was created[4], the Fraud Act 2006 made fraud prosecutions more efficient and the Bribery Act 2010 created the first corporate offence of “failure to prevent”.[5]

The fight against fraud, however, is far from over. In most instances the development of legislation/policy follows the commission of crime as offenders continue to develop new methods to circumvent the law in order to obtain culturally prescribed goals (such as wealth) through non-prescribed institutional means (such as committing fraud) (Merton’s Strain Theory of Societal Anomie, see Merton, 1968).[6] I asked Kate McMahon, Partner at Edmonds Marshall McMahon and serious fraud lawyer what the challenges in detecting, preventing, investigating and prosecuting fraud are today. Kate said:

“One of the most satisfying parts of investigating fraud is that it is often committed byextremely bright individuals which often makes the case more challenging to investigate. Complex fraud is often conducted with significant forethought and with that forethought comes ingenuity. Successful fraudsters often have the “seed money” necessary to commence more imaginative frauds anonymously – like the Forex Trading scandal we investigated recently. Today, when one can transfer money to countless different jurisdictions in under a minute, the money can be hard to trace. When money is elicited via electronic means, the identify of the fraudster can be well concealed as can the holding structure the money is sent to, the IP address of the controller and the identities of any assisting associates. Generally, traditional law enforcement techniques cannot keep up with the international fraudster; a modern day fraud investigator needs to know his or her way around banking, IT, international investigative options and trust structures. However, behind even the most complex structure is a human. And unlike computers, we all make mistakes at some stage – and that’s what we find.”

How can society overcome such challenges and move towards an anti-fraud culture?

The Fraud Advisory Panel in its 2016 publication, “In 2006 the Fraud Review talked of an anti-fraud culture throughout society based on deterrence, prevention, detection, investigation, sanctions and redress for victims. Ten years on we ask, has government delivered this promise?” suggests (amongst other things):

Creating a National Economic Crime Commission to better understand the problems associated with fraud and to develop a common strategy for tackling them, to identify gaps in resources, to promote the need for robust policies on fraud and to build public and political support for the effort that an effective fraud response will require;

Creating a clear and realistic picture of the size and shape of the fraud threat. The final report of the annual fraud indicator in 2014, estimated the total fraud losses to be £52 billion (£15.5 billion discovered, £36.5 billion hidden or unreported). Action Fraud (formerly the National Fraud Reporting Centre) received almost a million reports in 2014-15. According to the Fraud Advisory Panel, government research suggests, however, that reputational and regulatory concerns prevent reporting finding that less than 2% of corporate cybercrime is reported;[7]

Increasing police resources to assist with fraud investigations. Under the National Policing Plan fraud was not reported as a priority – leaving victims of fraud with little hope of an investigation. The report, Real lives, real crimes – a study of digital crime and policing (December 2015) Her Majesty’s Inspectorate of Constabulary finds the police to have:

a. A lack of effective response to fraud;

b. Too many victims being directed to Action Fraud when action could have been taken;

c. Belief amongst officers that online fraud is less of a priority than physical crimes; and

An alternative, however, to the suggestions posited by the Fraud Advisory Panel, to tackle fraud and to create an anti-fraud culture, is private prosecution. In a recent article by Lewis, et al. (2014)[9] the authors consider the challenges and opportunities for private prosecution of fraud offences in England and Wales. They find private prosecution enhances criminal sanctions against fraudsters, assists the State in meeting the demand for criminal prosecutions and that the pursuit of fraudsters has shifted from the State to victims as the involvement of the private sector in investigating and prosecuting fraud has become more necessary.

Accordingly, private prosecution provides victims with an alternative to reporting to Action Fraud and police investigation. Private prosecution provides victims of fraud with greater control over the prosecution process (Edmonds & Jugnarain, 2016),[10] a more efficient investigation and prosecution, the potential to trigger police interest (Lewis et al., 2014) and for corporates, limits reputational damage as it signals a commitment to establishing an anti-fraud culture within the company.

Only time will tell, however, if the measures detailed herein will foster an anti-fraud culture resulting in the question, is the state still failing to prevent, deter, investigate, and prosecute fraud being answered more positively.

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